Peer Steinbrueck, former finance minister of Germany and a vocal proponent for tougher regulation of hedge funds, cannot explain what a hedge fund actually is or does.

When asked by the host during a German television show to briefly describe what a hedge fund is, Peer Steinbrueck went on to explain: " With little capital you borrow large amounts, buy companies, break them up and sell your shares in the company."

Another guest at the show, Susanne Schmidt, daughter of former chancelor Helmut Schmidt and an ex-investment banker, looked at him with disbelief and said that his explanation resembled more a Private Equity fund than a hedge fund.

While probably only few politicians are aware of what hedge funds really do, this example of inadequate knowledge is mindblowing.

Peer Steinbrueck regularly attended G-7 meetings as head of the German delegation and met with colleagues and central bankers around the world. Tougher regulation of hedge funds was always high on his agenda. Even after the crisis of 2008, during the course of which Germany, under finance minister Steinbrueck, bailed out banks like IKB, Hypo Real Estate, Commerzbank and the state owned Landeszentralbanken with billions of Euros, he went on to blame hedge funds and unregulated offshore funds for the crisis. At this point he also revived his international campaign for tougher regulation of hedge funds and wanted to make this a topic of discussion at G-7.

His public blunder now shows that he never had an idea of what hedge funds do. It is fair to assume that his actions -and probably similar actions of many other politicians- are ideologically motivated with the sole intent to satisfy the electorate. Since the average citizens also have no knowledge of hedgefunds, it is easy to blame them and some big-earners for everything that went wrong in financial markets over the past couple of years. It also means that politicians and regulators do not have to take any blame, which would be the case if there were an honest discussion and they stuck to the facts.

Below is a videoclip from the show, however, it is only available in German.

Peer Steinbrueck was unavailable for comment.